Should you place your investment money with the stars of the fund management industry in the belief that they will strongly outperform the stock market? Or put it into a computer-run fund which simply matches the rises and falls of the FTSE? An independent analysis of eight years of tracker fund performance data suggests that investors should junk expensive actively managed funds, in favour of lower-cost trackers.

The research comes from Money Management, a respected monthly magazine that surveys financial products and performance. It found that the vast majority of unit trust tracker funds consistently outperformed the averages, and across all indices and markets.

For example, the typical unit trust invested in shares quoted on the London stock exchange achieved a gain of 33.9% in the year to 19 February 2010. But the average fund tracking the FTSE All Share index, earned its investors 38.3%.

Even in emerging markets, where fund managers have the greatest opportunity to beat the index by finding unknown high-growth companies, they trail the index. Money Management also found that regardless of market conditions – whether the index is soaring or plummeting – in each case the trackers outperformed the actively managed funds.

So why do trackers outperform? The answer is simple: charges. A traditional unit trust or Oeic (open ended investment company) is likely to charge around 5% or more up front, and then 1.5% of the fund's value each year. Most tracker funds do not charge anything up front and then between 0.25% and 1% a year.

Trackers are cheaper because they don't pay huge salaries and bonuses to fund managers.

Instead, they use computer programmes to mimic an index.

If, for example, 8% of the FTSE's value is in BP, 8% of your money is effectively placed in that stock, although managers use various instruments to avoid transaction costs and stamp duty.

Are there downsides? The truth is that an index fund will never offer thrilling returns that are sometimes achieved by a few super-star managers. For example, anyone who invested £1,000 in Fidelity's Special Situations fund at launch in 1979 saw it explode in value to £148,200 in the 28 years that he ran the fund, far exceeding anything an index fund has achieved.

At Ignis Asset Management, fund manager Simon Mungall says: "If all market participants invested passively there would be no actively determined returns for passive funds to track. So the argument in favour of passive investing lacks coherence. Moreover, placing blind faith in market returns is dangerous.

"Proper investing pays attention to risk ... the problem of passive investing is that it ignores the question of whether a particular stock is over or undervalued.

"Now is not the time to be investing passively. The outlook for growth and inflation is uncertain. In a long deleveraging phase, returns will be anaemic and the challenge will be to find the best companies and separate them from those that are currently overvalued following the bounce; an index tracking fund cannot."

But critics say that the principal reason why active funds are promoted to investors, rather than index trackers is commission paid to advisers. If a financial adviser recommends an active fund, they will typically take 3% of your investment as upfront commission then another slice from the annual charge. Index funds rarely pay any commission to an adviser.

Which tracker fund should you buy?

Money Management found that although all trackers promise to replicate an index, some are more successful than others. It names the F&C FTSE All Share Tracker as the best fund over eight years of performance data in the All Share sector. It gave investors a 42.9% return, compared with the 47.5% gain in the index. The worst, St James Place Tracker, returned just 25.2%. The discrepancy is mostly accounted for by charges, although returns are also affected by what's called "tracking error". The F&C fund has no initial fee and an annual charge of 0.3%, while the St James fund has an initial charge of 3.75% and an annual fee of 1.25%. The best returns for a FTSE 100 tracker fund were Santander Stockmarket 100 Growth fund, earning 35.1% over eight years, compared with 19% on the L&G UK 100 Index fund. The Santander fund charges 0.35%, but only within a child trust fund, compared with 0.65% by the L&G fund. The L&G fund's poor performance is a matter of concern, as it is one of the biggest in the UK.